Eskom has launched its long-threatened legal review of the regulator’s decision to grant licences in 2024 to five electricity traders, as well as a cross-border trading licence – a move that has again raised some concern that South Africa’s electricity reforms are stalling.

Eskom’s challenge comes despite the fact that similar licences have been approved in favour of several other electricity traders over the past more than ten years and against the backdrop of the recent launch by the National Energy Regulator of South Africa (Nersa) of a process to consult on and Gazette trading rules by June next year.

Nersa is named as the first respondent in Eskom’s July 23 application to have the licences reviewed and set aside, alongside Green Electron Market, CBI Electric Apollo, GreenCo Power Services (which also received a cross-border licence last year), Discovery Green and NOA Group Trading.

While the licences were all granted in 2024, Nersa published its reasons for decision for the licences in question only between April and the end of June this year; a development that Eskom indicated it was awaiting before moving ahead with its review application.

In its affidavit, Eskom argues that the five trading licences represent a fundamental and unilateral change in policy by Nersa that could “upend” the entire landscape of electricity provision. It would also allow traders to “poach” Eskom customers to the detriment of its tariff pricing structure and those customers reliant on subsidisation to gain access to electricity.

The State-owned utility lists six objections to the licences, including:

• A lack of a governance framework and rules, without which Eskom argues it is not sensible or appropriate to grant trading licences;
• An “unlawful” infringement of Eskom’s existing licence and areas of supply;
• A ‘cherry-picking’ of profitable customers by traders;
• Unfair competition, based on a claim that traders are able to implement more flexible pricing than is the case for Eskom;
• A lack of a stipulation by Nersa that applicants for trading licences have prior consultation with Eskom when these applications affect the utility’s licence areas and customers; and
• Adverse impacts on Eskom’s tariff recovery and subsidies, owing to Eskom’s assertion that the current tariff is not designed for multiple traders, particularly in relation to the recovery of fixed costs and the socialisation of risk.

“Granting trading licences without addressing these fundamental issues will lead to unintended consequences, contravene existing rules and licences, compromise the orderly development of electricity infrastructure, and negatively impact the broader South African economy,” the affidavit reads.

No mention is made of the previous trading licences granted by Nersa prior to the 2024 awards, but the utility contends that these most recent five licences should be overturned on grounds that the regulator’s decision was irregular and irrational.

STATE OF REFORM?

Krutham’s Peter Attard Montalto says the development indicates that Eskom is likely to resist reforms in the electricity sector unless and until it is convinced that all the imponderables and uncertainties have been ironed out.

“However, reform is always messy, so the question really should rather be whether enough of a safety net financially has been put in place for Eskom.

“In this case the answer is probably no, especially when considering the municipal arrears situation, which will take at least five more years or so to resolve - but financial and creditor issues cannot be an excuse to not reform,” he says.

To ensure the reforms are not derailed as a result of Eskom’s reticence, Attard Montalto believes there is a need for a much stronger statement of the end state of Eskom's balance sheet and capital structure.

“We urgently need a restatement of the Eskom roadmap with this kind of detail from Operation Vulindlela so that the shareholder compact is properly aligned with the reforms.”

EE Business Intelligence MD Chris Yelland is far more critical of Eskom’s legal application, describing it as “dangerously disingenuous”.

He says Eskom’s court challenge represents a full-frontal assault on reform and an attempt to turn back the clock on two decades of progress.

Yelland says the intention to open the electricity market to traders was outlined in the White Paper of 1998, reinforced in the 2019 Roadmap for Eskom published by the then Department of Public Enterprises, and given further legal authority by the heavily consulted Electricity Regulation Amendment Act, which came into force earlier this year.

“Instead of adapting to the market evolution it helped script, Eskom is now deploying legal tactics to delay the inevitable: a competitive, diversified electricity supply industry where customers have choice and innovation can flourish,” Yelland asserts.

Energy Council of South Africa CEO James Mackay says that, while the energy reforms have not stalled, there is a need to strengthen planning and collaboration to address the numerous challenges and complexities of reform before they escalate into a crisis.

He says Eskom's concerns about inadequate planning for, and consideration of, its financial sustainability are valid and pose a significant risk to the entire system transition.

“It is widely acknowledged in the industry that Eskom inherently provides both risk and commercial cross-subsidies for private sector generators.

“To put it simply, Eskom serves as the system's proverbial battery, providing technical balancing and back-up for private generators, as well as the proverbial bank, providing commercial risk and tariff subsidies, all that are not currently adequately compensated for.

“These issues will be addressed through the implementation of the wholesale market and other planning steps, but which are as yet not in place,” Mackay says, while expressing confidence that the commitment to the reform agenda remains intact and that issues can be resolved out of court.

TRADERS REACT

Meanwhile, NOA Group Trading CEO Andrew Taylor has confirmed that the company is one of the traders cited in Eskom's court papers.

Taylor tells Engineering News that it has briefed and mobilised external legal counsel to represent it in the case and that it is in the process of formulating a position and its reply to the legal process.

Discovery Green head Andre Nepgen, meanwhile, says it is currently considering Eskom’s court papers and the merits of its application with guidance from its legal advisors.

“We respect Eskom’s decision to seek legal relief whilst remaining confident in the progressive steps that have been taken by Nersa and government to liberalise South Africa’s electricity market.”

Nepgen adds that it has received a legal assurance that its trading licence application, and the granting thereof by Nersa, followed all due processes, which included representations at public hearings and compliance with all Nersa’s requirements.

“We view the granting of the trading licences as a critical enabler for a competitive energy market, innovation, broader access to clean and affordable energy and South Africa’s just transition,” he says, adding that Discovery Green remains committed to engaging constructively with all stakeholders and will follow due process as the matter proceeds through the courts.

“We trust in the integrity of South Africa’s judicial system and will continue to operate transparently and in accordance with all laws.”

Apollo Africa CEO Ed Cameron also acknowledges Eskom’s legal challenge and says he fully respects all stakeholders’ rights to seek clarity on regulatory processes.

"Our licence was issued following due process, and we remain committed to contributing to a competitive and reliable electricity market in South Africa.

"We believe competition ultimately benefits customers and support ongoing engagement with regulators to ensure a fair, transparent industry for all," Cameron tells Engineering News.

Other traders cited in the case and contacted by Engineering News have indicated that they are still assessing Eskom’s application, while Nersa says it will respond in due course.